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What is Assets And Liabilities?

As this is the most basic term of accounting, this should be really simple and clear to understand.

Assets are anything that proves to be economic resources for the organization. Anything that is valuable and useful to the company or may help in creating income in future is an asset. . For example, building, furniture, motor car, plant & machinery, goodwill etc.

Types of Assets

Fixed Assets

These are the permanent assets of a company. These assets are bought for a very long term and the purpose is to create revenue. For example, building, furniture, motor car, plant & machinery, goodwill etc. fixed assets are shown in the Balance Sheet at its cost less depreciation. The term used for a total of fixed assets is “gross block”. Net block is the value obtained by deducting depreciation from the gross block.

Investments

Investment is the money invested in expectation of future gains. Two types of investments are: short term investments and long term investments. Short term investments are treated as current assets whereas long term assets are treated as fixed assets.

Current Assets

These are the assets that remain in the company for a relatively shorter time than fixed assets. These are mostly liquid and easy to convert into cash. Current assets are acquired for the purpose of creating income by converting them or selling them in the normal day to day business. Cash, bank balances, debtors, interest receivable, closing stock, rent receivable, short term investments are some of the examples of current assets.

Fictitious Assets

These assets basically don’t have any market value. Fictitious assets are treated by writing off against the profit & loss account. Discount on issue of shares, preliminary expenses are some examples of fictitious assets.

Intangible Assets

Intangible assets are those assets that cannot be touched or seen and lack physical nature. Intangible assets are shown in the balance sheet. Goodwill, patents, copyrights are some examples of intangible assets.

What are Liabilities

Liabilities are basically burden for the company. Liabilities are the debts that the company owns and need to be repaid by it in the future. For example, bank overdrafts, capital provided by the owners, creditors etc.

Types of Liabilities

Fixed Liabilities: Fixed liabilities are those liabilities that are to be repaid after a long time. These are not paid during the day to day operations of the business. Loans, debentures are some examples of fixed liabilities.

Current Liabilities: These liabilities are repayable in a short term of time or in the foreseeable future. Bills payable, bank overdraft, creditors etc are some of the examples of current liabilities.

Contingent Liabilities: These are expected liabilities that may or may not possibly occur in the future depending on the happening of an event. If the event happens, the contingent liability becomes a real liability. Liability under a law suit, guarantee for a loan etc are some examples of contingent liabilities.